Order against Scallop Investments & Leasing P Ltd.

ORDER AGAINST M/S Scallop Investments and Leasing (P) Ltd. AND ITS DIRECTOR NAMELY Shri. Amrish Valia UNDER SECTION 11B OF SEBI ACT, 1992 READ WITH REGULATION 11 OF THE SEBI (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO THE SECURITIES MARKET) REGULATIONS, 1995 IN CASE OF SURYADEEP SALTS, REFINERY & CHEMICALS WORKS LTD.

1. M/s. Suryadeep Salts, Refinery & Chemicals Works Ltd. (hereinafter referred as "SSRCL") came out with a public issue of 58,50,000 equity shares at par. The issue opened for subscription on 06/03/1996 and closed on 09/03/1996. It was gathered from the statutory reports filed with SEBI that the issue was subscribed to the extent of 94.52% and 8 applicants were allotted 48,80,000 equity shares (which was 88.24% of the total) out of total 55,29,900 shares allotted to the public.

  

2. Investigations were conducted by SEBI into the alleged price manipulations and irregularities in the public issue of M/s. Suryadeep Salts, Refinery & Chemicals Works Ltd. (hereinafter referred to as "SSRCL"). Investigations revealed that above referred eight applications were made through stock invests which were issued by the Global Trust Bank, Bandra Branch. The eight applicants were Surendra Somani, Rakesh Naval, Chandra M. Singhi, Raj Basantani, Seema Basantani, Madhukar Patil, Ajay Verma and Kewal Verma. Investigations with the aforesaid applicants revealed that this was a financing arrangement and and it was not a case of genuine subscription in the public issue of SSRCL. These 8 applicants entered into an arrangement with one YES Investments, according to which, they were to apply for shares in the public issue of M/s Suryadeep Salt Refinery and Chemicals Works Ltd and on allotment, shares were to be returned to M/s YES Investments who would pay back the amount subscribed in the shares alongwith interest @ 18% pa . It was stated by the applicants that they had received back their money alongwith the interest and in turn they had issued power of attorney in favour of the nominee of M/s. YES Investments. If the shares allotted to these financiers namely, Surendra Somani, Rakesh Naval, Chandra M. Singhi, Raj & Seema Basantani, Madhukar Patil, Ajay and Kewal Verma are excluded from the total subscription, then the public issue is subscribed only to the extent of 6.28% while the requirement is that subscription to the extent of 90% of shares offered to the public should be received .

  

3. The fact that these 8 applicants were not genuine subscribers but it was merely a financing arrangement is evident from analysis of bank accounts. It was also seen during the course of investigations that Rs. 2.44 crores was repaid to the applicants (principal amount alongwith interest on the same for the period of date of subscription and date of repurchase) vide cheques bearing Nos.249801 to 249821 dated 17.5.96 drawn on Global Trust Bank, Bandra. These cheques were issued by M/s. YES Investments. Investigations showed that fund for payment to M/s YES Investments came from the current account of SSRCL (CA 1180) at Vijaya Bank, Alkapuri branch, Vadodara. The amount was transferred through an account of Prarthana Engg. (CA No.1272), Vijaya Bank, Alkapuri branch. Rs.2,55,95,000/- was transferred from the public issue account of SSRCL to the account of Prarthana Engg. which in turn transferred Rs.2,49,70,000/- to the account of M/s. YES Investments by way of demand draft Nos.844993 to 845000, 845651 to 845655, 845663 to 845674, 845676 and 845730, out of the money received from SSRCL . Thus, it is seen that Prarthana Engineering charged Rs. 6,25,000 (Rs. 2,55,95,000 minus Rs.2,49,70,000/)for arranging finance in the guise of subscription to SSRCL. It was also seen that M/s YES Investments also charged Rs.5,70,000 to act as a conduit in arranging these loans disguised as subscription.

  

4. Investigations revealed that the account of M/s Prarthana Engineering was introduced by Dr. Rajendrasinh Rathod-Director of SRCCL and it appeared that this account was opened merely to facilitate transfer of money from SSRCL to M/s YES Investments. The credit entries in the account of Prarthana Engineering are on account of transfer of monies from SSRCL. A sum of Rs.1.19 crore was transferred on 10.5.96 from account of SSRCL to account of Prarthana Engineering This amount in turn was transferred by Prathana Engineering by way of demand draft to the account of M/s YES Investments on the same day. Likewise, further funds have been transferred from account of SSRCL to account of Prarthana Engineering first and then from the account of Prarthana Engineering to the account of M/s YES Investments almost simultaneously. It is clear from analysis of the bank accounts of SSCRL, Prathana Engineering, YES Investments and these 8 applicants that the company i.e SSRCL purchased its own shares in violation of Section77 of Companies Act, 1956 and didn’t utilise the funds for which it had approached public. SSRCL and its Directors thus colluded with M/S Yes Investments and M/S Prarthna Engineering in violating the provisions of Section 69 of Companies Act, 1956, the terms of the prospectus and the provisions of SEBI - DIP Guidelines 1992 by giving a misleading impression that public issue received the required minimum subscription.

  

5. Investigations further revealed that promoters cornered approximately 89% of total shares allotted through buy - back of shares from financiers by using public issue proceeds. This cornering by promoters led to a condition of artificial scarcity. Investigations brought out that M/s YES Investments as a nominee of Dr. Rathod, Director of SRCCL started trading in SSRCL shares through various brokers. The shares were transacted for YES Investments, promoters of SSRCL by Aash Infin & Agrowth Pvt. Ltd., Scallop Investment and Allbless Trading. The trading of these entities affected the prices and these entities were the market movers. The trading of these entities accounted for approximately 60% of total transactions in the scrip at the exchange. The initial buying spree during settlement no. 6 & 7 had prompted the rise in scrip price. The subsequent selling pressure during settlement no. 8 & 9 resulted in drop in the share price. During no delivery period buying by these entities pushed the share price to high of Rs. 41.

  

6. Further, investigations revealed that approximately 90,000 shares formed the traded floating stock and these very shares were being traded by Scallop, Allbless through their associates at the counters of different brokers. Interestingly, it was noticed that shares having distinctive numbers (20671-28970, 30071-45070, 85071-110070, 70071-82470, 82571-85070, 61171-69570, 137071-147570) were being either bought or sold by these entities during various settlements. It was noticed that the shares which had been sold by AIAPL during the settlement no. 6, 7 & 8 were in the names of Kaveriben Mehta, Narharlal Bhatt, Samir Dholkia, Doshi Ashish, Nagin Waghela and Shital Desai. These shares were off loaded in Settlement no.7 by Shri. Hemendra Shah. The shares received by AIAPL during settlement no.12 bore the same distinctive numbers as that of certificates which were delivered during previous settlement Nos.6, 7 and 8. Settlement no.10 &11 were "no-delivery" period, the actual delivery of shares were taken during Settlement no.12. Shares delivered after "no delivery" period should be accompanied with new transfer deed issued any day after the book closure and these shares should be duly transferred in the name of last holder. In this case it was observed that the shares received at the end of book closure were in the name of persons who actually sold those shares during settlement no.7 i.e. prior to book closure. This shows that buyer and seller were acting in collusion and shares purchased by the buyer were being passed on to the seller for circulation in the system. Consequently same share certificates were being routed in the market through various brokers. It was also seen that Shri. Ashok Parmar and Shri. Nagin Waghela (who were shareholders as per records of the company) and whose share certificates were in circulation were connected with YES Investment and they were the ones in whose favour power of attorney on behalf of YES Investment were issued by the financiers. It was also found that some of the shares sold in the market belonged to promoters and these were issued to them prior to public issue. This further corroborates the nexus between promoters and the operators who were offloading shares in the market i.e. YES Investment, Albless, AIAPL, Scallop, etc.
   
   
7. It was also noticed that when the BSE Sensex was falling, share price of SSRCL was showing upward movement. The company had not started production and there was no justification for a rise in price to the extent of Rs.41/-for the maiden issue. The concerted buying and selling of shares by M/s. Albless Trading and Investment (P) Ltd., Scallop Investments and Leasing (P) Ltd. and Aash Infin and Agrowth P Ltd., knowing fully well that there was hardly any floating stock, created artificial market and increase in price of the scrip .
   
   
   
8. In view of the above, a show-cause notices wasere issued to M/s Scallop Investments and Leasing (P) Ltd. and its Directors Shri Amrish Valia for having violated Regulation 4(a) (b) (c) and (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 read with Section 11(1) and 11(2)(b) & (e) of SEBI Act, 1992 asking the company and its director to show cause why suitable directions including directions prohibiting the company from accessing the capital market and debarring the director from dealing in securities for a suitable period should not be issued. No replies to the above mentioned show cause cause notices were given either by the company or by Mr.Valia. received.
   
   
   
9. An opportunity for personal hearing before me was given to M/Ss. Scallop Investments and Leasing (P) Ltd. and its Directors Mr.Valia. No one attended either on behalf of the company or its director on the appointed date i.e. 24/05/2002. I also noticed from records that no reply was given either by the company or its directors received in response to show cause notices given earlier. Various opportunities given to Scallop and its Director Mr.Valia, the above mentioned entities, were not availed of by them to present their case with regard to the charges levelled against them. in the show cause notices. I therefore proceed in the matter based on the material and evidence available on record.
   
   
   
10. I have considered the findings of investigations and the material and evidence available on record and am fully satisfied that the charges levelled in the show cause notices are substantiated. I find that M/s Scallop Investments and Leasing (P) Ltd. and its Directors created a false market in the shares of SRCCL by buying and selling in concert with Albless and Ash Infin through various brokers at the various counters through these entities knowing fully well that theyre was hardly any floating stock. The price of the SSRCL was artificially increased to Rs.41/- in connivance with promoters of SSRCL, YES Investment, other operators (Ash Infin, Albless) with a view to induce other investors to buy and sell the shares of SSRCL.
    
    
11. In view of the above, I in the exercise of powers conferred upon me by Sections 4 (3) and 11 B of SEBI Act 1992 read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995, direct that M/s. Scallop Investments and Leasing (P) Ltd.. be prohibited from accessing the capital markets for a period of three (3) years. I also direct that its Director Shri. Amrish Valia, is debarred from dealing in securities for a period of three (3) years. This order shall come into force with effect from August 19, 2002.
    
    

with a view to induce other investors to buy and sell the shares of SSRCL.